Is Hawaii taxing healthcare to death?

For more than a month, Hawaii has been taking aggressive measures to “flatten the curve” of the coronavirus, to curtail its impact on our fragile health care system.

One worry has been that Hawaii doesn’t have enough doctors and other medical providers. Could Hawaii’s tax system be a reason for the shortage? Should physicians and other health care providers in Hawaii be given some sort of a break from state taxes, such as the general excise tax, to encourage them to move here, stay here or delay retirement?

Those are critical questions that local physicians Scott Grosskreutz, Ed Gutteling and Elizabeth Ignacio and economic research expert John Dunham addressed at a free live webinar on Thursday, April 30.

Grosskreutz is a radiologist in Hilo; Gutteling is is an orthopedic surgeon in Hilo; Ignacio is an radiologist on Maui; and Dunham is president of John Dunham Associates, based in New York, who recently conducted a study for by the Grassroot Institute of Hawaii titled, “How Hawaii’s GET adds to island health care costs.”

Keli’i Akina, Ph.D., president and CEO of the Grassroot Institute of Hawaii, moderated.

See the complete transcript below.

Keli’i Akina: Aloha and welcome to the Grassroot Institute of Hawaii. We’re glad to have you on today’s webinar, and our subject is “Is Hawaii taxing health care to death?” We’ve got a fascinating program for you, but at the outset what I want to say is thank you so much for taking time out of your schedule to join us today. We want to hear from you.

Our format is very simple. I’m going to introduce our panelists today. Each of them is going to share about 5 or 6 minutes from his or her perspective, and then we’re going to allow you to ask your questions. Anytime, you can write your question down and send it off to Joe Kent, who will fill the questions and answers a little bit later on. Again, thank you so much for being here with us today. It’s a very important topic, and I’m glad you’ve taken time to be here.

I think you all know, we all realize, that over the past couple of months, Hawaii has been taking very aggressive measures to “flatten the curve of the coronavirus.” What that refers to is to curtail the impact of the coronavirus on our fragile health care system. One worry has been that Hawaii hasn’t got enough doctors to actually manage the crisis, but I think you realize that long before the coronavirus crisis, Grassroot Institute had been one of many voices warning the state about the growing exodus of physicians from the state.

It’s an ongoing facet of the brain drain, and it’s in response to many government regulations. That’s given rise to the timely but often ironic question, could physicians become as scarce as toilet paper? Now, no one knows the shortage of physicians, particularly specialists, as acutely as our neighbor island residents. That’s why I’m so glad that three of the physicians today on our panel happen to be practicing on the neighbor islands.

Going back to the question of root causes, could Hawaii’s tax system be a reason for the physician shortage? Should doctors and other health care providers in Hawaii be given some sort of break from state taxes such as the general exercise tax, all for the purpose of encouraging them to move here or to stay here or to delay their retirement? Those are some of the critical questions that are going to be discussed today by my panelists. I’d like to welcome them to the program at this time.

Scott Grosskreutz is a radiologist in Hilo, and he’s in Hilo right now. Welcome, Scott, to the program.

Scott Grosskreutz: Thank you. It’s a pleasure to be here.

Akina: Well, we’re glad to have you on board. Ed Gutteling, a long-term friend, is an orthopedic surgeon who lives in Hilo and practices there as well. Ed, welcome to the program.

Edward Gutteling: Thank you, Keli’i, thanks for having me.

Akina: Elizabeth Ignacio, who also goes by Lisa, is a radiologist on the island of Maui. Lisa, thank you for joining us today.

Elizabeth Ignacio: Thank you, Keli’i.

Akina: Glad to have you here. John Dunham is one of our Grassroot scholars who has produced tremendous work for the institute, particularly a recent paper entitled How Hawaii’s GET adds to island health care costs. He’s up late in New York City on the East Coast. John, thanks for being with us today.

John Dunham: Thanks so much, it’s always nice to be in Hawaii.

Akina: Glad to have you as a partner in our work. Now, back to the question. Is Hawaii’s tax system taxing health care to death? We’re going to open up with Lisa Ignacio, the radiologist on Maui. Lisa, here’s what I’d like you to do as you take the football at this point. Tell us a bit about the situation now with respect to Hawaii’s health care system, and in particular, its capacity. People talk about a physician shortage and so forth. Is this real? What do you see as a physician in the field? Go ahead and take the next 5 or 6 minutes to address our audience.

Ignacio: Thank you. Let me go ahead and share my screen here, and then we’re going to bring up the talk. Then we will start the discussion here. There you are. Can you guys see the screen well?

Akina: Yes.

Ignacio: Good. Thank you. Mahalo to Grassroot Institute for hosting this panel discussion. Health care in Hawaii, we’re in the midst of a physician shortage crisis. It has steadily been getting worse. Why is it getting worse? How can we fix it? This is what we’re going to explore here in this discussion.

To say that Hawaii health care is complicated, it’s an understatement. Of course, there are many layers to this system. We have our workforce, we have science, we have market forces, we have the legal constructs that are all playing a part, so it’s a complicated discussion, yes. Luckily, I don’t have to break that all down for you guys. There’s a lot of independent assessments out there that can properly frame our health work, health care today in Hawaii.

Why do we do this? Why do we evaluate all these different things? It’s because we want to make good data-driven decisions when it comes to our better access, improved quality, improving efficiency. We do this all for our patients. We want to do it for our most vulnerable Hawaii patients. Those who have a low income, those who are uninsured, and they’re not minorities.

Every year, groups like CWF, the Commonwealth Fund, put out these scorecards for the 50 states and the district of Columbia, and they follow our state’s progress in 47 specific variables. How does Hawaii look? The big question. How does Hawaii look? How does our report card look? For several years now, we’ve looked pretty good. I say that with a squint and with these asterisks above my head because we really need to look at that a little closer.

The good news is that Hawaii still leads in several of the health care rankings. We are up there with Massachusetts and Minnesota, Washington, Vermont and Connecticut. We’re looking good. What are some of the things that Hawaii’s really good at? We’re really good at insuring our patients. We have a huge percentage of our upstate population that has medical insurance, and that’s good.

In terms of prevention and treatment, we’re really good at avoiding ER visits, particularly in our patients over 65 years of age. In terms of our hospital use, we’re good. Our Medicare spending per beneficiary is excellent. For our “healthy lives” initiatives, we’re really decreasing colorectal cancer deaths in the state of Hawaii. All of this is largely attributable to the quality performance of our Hawaii doctors.

While we’re talking about the Hawaii doctors, I want to tell you some other good things that Hawaii doctors do. Our Hawaii doctors are not just healers, but they’re really important to our state’s economy. They’re supporting national and state economics through the creation of jobs, through the purchasing of goods and services and the large-scale support of our state and local tax revenues.

In terms of economic impact, (there are) 3,700 doctors in our state, and we had $8.5 billion in direct and indirect economic output. This is a report that’s put out by the AMA (American Medical Association) in partnership with the Hawaii Medical Association. You can see that on average, each Hawaii physician supported about $2.3 million in economic output.

It’s worth mentioning that Hawaii physicians support about 47,000 jobs — 47,137, to be exact. They’re an important part of the state economy. You can use comparative industries like higher education, legal services, home health care and nursing facilities, and you can stack those all up in terms of their economic output. The impact is the Hawaii doctors will still produce more jobs than all four of those competitor industries combined.

Everything’s great, right? Hawaii is great. Our doctors are great. Why are we having this panel discussion? We have to go back to that initial analysis to see the widening gap in some four general areas and examine a little bit more closely how we have these steadily declining problems in Hawaii. I apologize for this slide. I know that it’s a little dense and it’s full of a lot of complicated terminology.

If you look at some of these areas, prevention and treatment, for example, you have, for vaccines, we have more children in the 19-to-35 months age (group) that did not receive their vaccines that they should. We have more central line infections. Under hospital use, we have increased hospitalizations. We have increased readmissions. For our Healthy Lives initiatives, we have more suicide. That’s a national problem that all the states are dealing with. For Hawaii in particular, we have slowly increasing infant mortality per thousand live births.

Remember how I said that Hawaii is really good at insuring our population? One of my Big Island colleagues reminds me that health insurance does not guarantee timely access. Even having a primary care physician assigned to you, does not guarantee access. What does this all mean for Hawaii? Do we have lazy doctors? Do we have bad doctors? 

No, we do not. Looking at data, we see, statewide, Maui, Big Island, Oahu, Kauai, these doctors, our doctors, are working extensive long hours. Their schedules are backed up six or eight weeks out, sometimes three months, and they’re covering an excessive patient load. Are Hawaii doctors bad? 

No, they’re not. Many independent analyses, including Medicare’s analyses, show that Hawaii doctors are providing the highest quality of care in the country.

I just want to finish up on one more comment that I want to say. I want to show that in a complex system, we know that there are deficits, we know that a lot of these problems are multifactorial, but the single most important factor that is a cause of this problem is a shortage of providers, really.

If you look at all those metrics on a prior slide, you’ll see that, why do we have problems with prevention? Well, we don’t have enough doctors to help with health maintenance. 

Why do we have so many problems with admissions? We don’t have enough doctors to keep you out of the hospital. 

Even if you do get good care in the hospital, why are there so many re-admissions? Because you don’t have enough primary care physicians to receive those discharged patients and help to follow them and keep them from going back.

I put it to you that the single most important deficit that we have that directly contributes to the erosion of our health care here in Hawaii is really our provider manpower. I want to show you this important study from UH. Thank you to Dr. Kelley Withy and her staff for these most recent calculations from December, 2019. This was submitted to our 2020 Legislature. You can see that our supply (is) 2,974. That’s 2,974 for our physicians, and 3,522, that’s what our needs are.

If you look at the blue line, it stays relatively flat. You see the red line, it gets higher and higher, the gap gets bigger and bigger. That has to do with our increased growth, our aging population. The same report shows that last year, 243 physicians were gone. One hundred and fifty-two just left our state — they were practicing physicians — and 91 retired. 

The statewide physician shortage keeps getting worse and worse and worse, and bottom line, we are in critical need. We need more physicians, about 830, to be precise. 

How are we going to manage that?

That is the basic problem that we’re dealing with here. We have 3,000 doctors. We got 1.42 million of you, and they’re still here. 

If I may, Dr. Akina, before I turn the discussion over, I want to definitely give a quick shout out to all our wonderful Hawaii health care workers, including my doctor colleagues because our Hawaii doctors have been heroes far before the appearance of COVID. They’re dedicated, caring people. They’re continuing to provide care, and that’s despite the fact that Hawaii doctors are older.

A quarter of our doctors statewide, and a third of the doctors on Big Island, for example, have forsaken retirement so that they can take care of patients because there’s nobody else there to do it. COVID happened. It’s a frightening pandemic, and it’s basically uncovered a lot of flaws and weaknesses in our health care system, but our Hawaii physicians just keep working despite the risk to their own health, to the risk for their families and their livelihood. They had stepped forward. Not a moment’s hesitation, not a blink of an eye.

Akina: Lisa, I want to thank you very much for your excellent presentation, and I’ve got a quick question for you, if you can answer it very quickly because I want to get on to Ed.

Ignacio: Sure.

Akina: Given that physician shortage that you have outlined, what is the implication for our state’s ability to deal with the Coronavirus COVID-19 crisis?

Ignacio: Well, that’s a question that I think worries a lot of the physician staff because we’re here and we’re working, and you might’ve seen the statistics that 20% of the people who will be positive for COVID and who will get sick will be physicians and health care workers, so we’re very concerned. We’re already in the midst of the shortage. We’re doing all we can. HMA is working with the Department of Health and the state to make sure we’re shoring up all those holes and that we’re networking as much as we can, we can try to overlap with the physicians that we have. A lot of people think, oh, we can rely on other physicians to come to Hawaii. It’s just simply not that easy. It’s hard to get people to come here. We’re doing all that we can to sort of fortify ourselves to cross-train and overlap and create a network that’s going to help protect us during COVID.

Akina: Thank you very much. We now go to Ed Gutteling who is an orthopedic surgeon in Hilo. We’ve been friends for a long time, and Ed has been a strong advocate along with The Grassroot Institute. Ed, give us a more personal perspective here for people who are in the state of Hawaii, and how they are impacted by the condition of the health care system, and give us a little bit from your own experience. I’m going to let you have about 5 or 6 minutes to do that. Thanks for being on the program. Go ahead, Ed.

Gutteling: Keli’i, thank you. I’m grateful for this time to address my colleagues and everybody watching.

Joe Kent: Ed, just to interrupt, Lisa, can you share your screen again, because it might have some of what Ed is talking about. … Go ahead, Ed.

Gutteling: As doctors, we’re trained to be analytic. We’re trained to look at symptoms and see where they progress and keep track and keep an eye out for these things, because if we don’t connect the dots then what we call the “natural history” is that the disease gets worse and you get real sick and people die. I would like to show you a few dots that should be connected here. 

Now, personally I’ve never lived through what the force majeure, or what the contracted attorneys call an “act of God.” I didn’t live through the 1918 Spanish flu, or the “act of man” that was World War II, or grow up in East Berlin with the wall, which is an act of man. This COVID thing is an act of God and an act of man and the response, this changes lives forever. Whatever we had as a crisis in our physician shortage before, it’s worse now. Let me give you a dot.

The first one up is my former colleague and friend who passed away not that long ago, Dr. Djon Lim. He was a cardiologist. He came to Hilo. He traveled through here, loved it, decided he wanted to practice here. He went on to further training, did his cardiology fellowship at Queen’s, and the program director subsequently said he was the best cardiology fellow they ever had, ever, in the whole history of the program. He could have gone anywhere. He came to Hilo. He loved it here. He was actually from Medan, Sumatra, which is down the road from Banda Aceh where my grandma was born. My dad was his patient. They would talk about Indonesia days. It was cool. He was very devoted to his patients.

I remember once I called him late Sunday night. He came in. He was sick. He came off his sick bed, looked like crap, to take care of my hip fracture patient in the middle of the night to make sure she got tucked away safe for her surgery. He was very devoted. 

Then one day he came to me and said, “Ed, I’m quitting.” I said, “What do you mean?” He said, “I can’t make money. I’m losing money. I’m going to be an employee of the hospital.” I said, “You’ve got to be kidding me. How can a highly trained, world class, fully booked cardiologist not make money in Hilo?” 

Well, and the reason was because most of his patients from Medicare didn’t pay enough. Used to pay, used to be he could make money, but then the cost of living went up. We got the highest cost of doing business in the nation, and Medicare rates didn’t keep up and he got into a negative situation and kept losing money. He went to the hospital.

The hospital could afford him, in part because they make more for the same thing he was doing out in practice, and they’re exempt from general exercise tax, which is 4.5% here. By the way, we have close to the lowest Medicare rates in the country, and with the highest cost of living. Then the state taxes us on top of that. That’s one dot. 

That was a few years ago. After he died, we’ve had six or more cardiologists come to town. They come and go. They don’t stay. We got some more now. I don’t know if they’re going to stay. Track record is not. Then in the last six months, this list you’re looking at, this is 26 docs who died or retired or moved away or gave up. … There’s another three that are part time.

Up here and the third one down (on the chart presented) is Dr. Frank Hammer, an anesthesiologist, my colleague, friend. He was 72 years old. He had a heart attack while he was giving anesthesia during a surgical case. Finished the case before he let himself go to the ER. That’s him. He won the international World Deadlift competition in his age group, (came in) second in bench press at age 70, but anyway he passed away a week later.

Also on that list of docs is Frank Lazaro, anesthesiologist. He came to town. Two of his three kids were born here. He loved it, then left. He said, “I don’t feel respected. I don’t make enough, and Hawaii is never going to change.” He left.

Another one is Dr. Danny Chun. He came here, had a kid born and left, the same reason. 

Then up there to the top corner is Dr. Ed Montell. He’s a gastroenterologist. He came here, and he started the Endoscopy Center for gastroenterologists — three and a half docs there. Ed Montell retired, his partner retired, the halftime guy moved away. You’re down to one doc, and he wants to retire. They have been trying to recruit a new doc for the last six years, six years, unsuccessfully. They cannot pay the going rate. What they offer, which keeps them solvent, is not enough to attract someone. Why don’t young docs want to come here? Well, it’s quite simple, we work too hard, we get paid way too little. Way too little. And if you think that the state government or the hospitals are going to fill this void — it used to be a big hole of private practice, now it’s a sucking abyss — you’re delusional. It’s magical thinking, if you think this is going to fill up.

I just read that nationally the GDP is going to be down 4.8% this quarter, and half of that, half of that, is health care. They’re all looking, trying to stimulate the economy, the president and the federal government is trying to stimulate the economy. What’s Hawaii doing? Nothing, and not only are they not stimulating it, they got a 4.5% GE tax on the gross (income), which we can’t pass onto our patients, we’re forbidden. Hawaii is the only state in the union that taxes Medicare, one of only two states in the union that taxes health care at all. Thirty-two percent of our docs are over the age of 65; we keep going because we love it. I love it. In one article I had a quote from Ernest Hemingway, (from) “The Sun Also Rises”: “How’d you go bankrupt? Well, two ways, gradually, and then suddenly.” That’s what’s happening. We think about Rambo. “I love my country. I just want it to love us back.” That’s us. That’s us docs nowadays.

Akina: Well, thanks, Ed. I love that quote. Before I let you go, let me ask you this. It doesn’t mean I haven’t been listening to you. I’ve been listening to you and we’ve had this conversation many times, but it’s a little bit difficult to believe, for the average person, that a high paid professional, a medical doctor, has low margins, so low that the GE tax can impact their decision as to whether they can stay in business or not. Can you kind of reiterate that a bit, because there’s a little bit of incredulity there when I talk to people about that, but you’ve seen the reality of it.

Gutteling: Yeah. Hard to believe. If you’re hanging on by your fingernails, a half a percent makes a difference, let alone 4.5%, and that’s on top of the gross. I think my colleagues, Dr. Ignacio or Dr. Grosskreutz, can speak to this better than I can, … but it is true. Now bear in mind, if you’re a specialist, you’re in Grade 26 before you make a penny, and you’ve got $100,000 to $200,000 in debt, nowadays. You get what you pay for, but you can’t expect them to be monks and live in poverty their entire lives. Certainly not if they’ve got a family. They have responsibility.

Akina: Well, thank you very much, Ed. Scott Grosskreutz is a radiologist in Hilo, and this issue of the GE tax has really raised your ire. You’ve been somewhat of an activist in terms of trying to get our state government to understand that they should do what many states have already done, and that is to exempt medical care from the GET. Can you tell us a little bit about the prospects of that? Is it likely that we’re going to get a bill in our Legislature? What are the pros and what are the cons? What are the obstacles you’re facing?

Grosskreutz: Thank you, Keli’i. I’ve been here practicing in Hawaii now for 25 years. If we could bring up the slides, please. While the shortage has been a major problem for well over a decade, we’re at the point now where we really hit a crisis point. There have been about 12 or more stories in the press recently about the effects of the shortage. Here’s an article in Civil Beat from the president of the Tax Foundation of Hawaii discussing how, in effect, while we’re taxing physicians out of practice. Next slide.

The state GE tax is the opposite of a progressive tax. It punishes patients for being sick or injured, often when they’re unable to work and pay their bills.

Kent: Scott, I’m sorry to interrupt. I just want to give a definition of the GE tax. It’s called the General Excise Tax, which is a tax on all goods and services, and it’s about 4.5% percent. Go ahead.

Grosskreutz: Thank you for that, Joe. The general excise tax is combined with the county surcharges, which can bring it up to 4.7%, and that’s on gross revenue. The HMA has determined that that probably results in as much as a 15% tax on right off the top before you pay any expenses at all. It’s a major cause of our physician shortage, the shortage of doctors and the inability to bring financially viable results in (a place with) the lowest availability of doctors able to take Medicare patients anywhere in the United States. Hawaii is number 51 behind all other 49 States and the district of Columbia in the number of doctors available to see Medicare patients. It actually lowers global tax revenues because there’s so many fewer physicians in the state that could be taxed. Next.

New Mexico is the only other state that has this sort of heavy taxation on health care. They’ve got a 6% general receipts tax. The result of these taxes is that you cannot bring new physicians in the system. It’s very difficult to bring people in. When you go to medical school, when you’re finished, you’re often in a quarter-million dollars in debt, you’re in your mid-30s, you’ve got to service that debt. To come into a state where it’s basically private practice, which is a small business, and you can’t make that a working proposition, that’s why we can’t get new doctors in to replace us at all. As a result, Hawaii and New Mexico have the oldest physician workforces in the country. Next slide.

A good question is, do hospitals pay the general excise tax? The answer is no, thank goodness. Hospitals and their employed physicians are not subject to the GET. According to the president of the Healthcare Association of Hawaii, and this is a direct quote, “Hospitals overall in Hawaii operate on very small margins. The GET will drive overall margins negative and have a devastating effect and the ability of Hawaii’s hospitals to adequately care for the people of Hawaii. The only hospital in Hawaii that recently was subject to the GET tax was St. Francis West, and they were pushed into bankruptcy within 20 months. Next slide.

One of the problems I think that we have in the state is that the state of Hawaii just doesn’t understand federal Medicare policy. This is a “Tax Facts” from the Hawaii Department of Taxation. You’ll see in the lower right-hand side, can physicians who are charged for Medicare tax or Medicaid, or the GET tax for Medicare Medicaid TRICARE, can they pass it along? It says that you can, but if you were to actually do this to basically bill the patient through their Medicare tax, the GET tax, I talked to CMS (the Center for Medicare & Medicaid Services) and they basically said that any physician that does that will be referred to the Inspector General. They’re going to be required to refund all those taxes, and in all likelihood, you could be disbarred or blocked from the federal Medicare programs. That can result in the loss of your license, or your hospital privileges. To do that, it would be suicide. I hope no physician is following the recommendations from the state here and doing this.

Medicaid programs, those are a state program, but I don’t know of any physician who charges Medicaid patients GET tax, they absorb that as well. We just don’t feel it’s ethical to charge patients for health care when they can’t afford that care. Next slide, please.

In order to try to address these issues, we do have a Hawaii Physician Shortage Crisis task force. We did meet with Mayor Harry Kim. The mayor immediately declared a state of crisis for health care access on the Big Island, where we have a 44% shortage of physicians. Every legislator, basically, on the Big Island has sponsored legislation to exempt health care from the GET tax. Rep. John Mizuno, who’s Chair of the Health House Committee, and Sen. Rosalyn Baker, Chair of Commerce Consumer Protection Health, have introduced legislation to exempt physician services and APRN services for health care from the GET.

The good news is that that bill, which is Senate Bill 2542, actually passed the Senate and moved over to the House of Representatives. The House Health Committee assures us that that bill will pass that committee. The real problem is the House Finance Committee, which did not hear the House version of the bill and has not expressed any support for passing GET reform this session. That’s our real challenge and obstacle right now. Next slide.

We did have a chance to speak to Gov. Ige, who was kind enough to spend the better part of an hour with us discussing the challenges of the COVID pandemic and the situation that physicians face here since the Legislature recessed before the GET Bill could be passed. We have asked the governor for an emergency or executive decision to exempt health care from the GET. Just today, it was announced in the newspaper that Gov. Ige said that the federal payroll protection program payments of businesses in Hawaii will not be charged with the Hawaii GET tax. In effect, what we’re asking for health care is totally in line with the governor or the actions the governor has already taken. Next slide.

We also have received support for this bill from the state director of the UPW, and we’re grateful for that. Well, like all of our folks at Hawaii, regardless of how you work, what setting, we all need to have access to health care. Next slide.

Unfortunately, the coronavirus pandemic is making things much worse nationwide. At this point before the pandemic, about a quarter of rural hospitals were threatened with closure and were financially struggling. There’s major health care systems like Mayo that are projecting losses as high as $3 billion. The American Academy of Family Physicians estimates that 60,000 private medical practices in the U.S. will either be closing or reducing services by June, and that those 60,000 practices employ 800,000 medical workers.

Next slide. This situation, this crisis will then get particularly bad on the Big Island. As you can see from the population chart estimates there, that Hawaii Island is projected to move from about 200,000 in population to over 300,000 by 2045, and our shortage of physicians — actually, the curve is going downwards. We have less physicians as we have more people to take care of. By 2040, our task force is estimating that we will have a shortage of physicians that will exceed 700, and that we will be lacking 480 physicians on the Big Island alone to care for the community.

Next slide. It’s really critically important that this GET legislation that we actually helped draft be passed as soon as possible in order to keep physicians still in practice. Once these physicians have to close their office and leave, it’s very difficult to bring them back. With so many physicians over age 65, if they have to basically start tapping into the retirement funds to keep their office open so it doesn’t go bankrupt, basically, in the next few months, then these people will be gone. We’ve already had reports and spoken to physicians who have been evicted from their medical offices because they couldn’t pay their rent on the Big Island. So it’s critically important that we keep physicians in practice, the pandemic is a health care crisis, and in order to deal with the health care crisis, you need health care providers. We’re just very hopeful that we can keep these physicians in practice. There are expected to be a second and third wave of the pandemic. The future tourism is at risk here, it’s our lifeblood of the economy. If tourists do not feel safe coming to Hawaii because we don’t have enough doctors to take care of our local community, let alone visitors, they’ll go elsewhere.

The other big impact that we can even see here on the Big Island is we see a lot of retirees that love the Big Island, that they love living in Hawaii. They often contribute to the community, but they end up leaving once they get health care problems because they know that we don’t have the resources in place, often, to provide them with the level of support that they feel they need. It is a crisis, and thank you for giving us time to talk about this.

Akina: Thank you, Scott. That was an excellent presentation, and I wish you well on that bill that will go through hopefully when the Legislature reconvenes. 

Well, you’ve heard it from the physicians in the field. We want to share with you our own economic analysis. John Dunham, president of John Dunham & Associates, does outstanding work for the Grassroot Institute, and we’d love you to go to our website and look for a paper entitled, “How Hawaii’s GET adds to island health care costs.” It’s an excellent analysis of the subject, and I’ve asked John to share a little bit about the numbers, he’s the author of that paper. John, you go ahead.

Dunham: Right. Thank you so much. I feel humbled here with all these physicians. I’m just a lowly economist, it’s a little bit different for me. I hope everyone can see this screen.

Kent: Actually, can you share your screen?

Dunham: I thought I did that, I’m sorry. Let me get back. Technology and I are not great here. Share screen, okay. Try that again.

Kent: There we go.

Dunham: All right, we’re getting there. I’m going to just give you some brief numbers that we came up with in looking at the general excise tax and its effect on physicians and the health care system in Hawaii. First, I want to say, though, that a tax like this, this is what we call a gross receipts tax. It’s a tax on the revenues that the company makes or a physician makes. It’s extremely rare in this country. There are only two or three states that have gross receipts tax at all, and most of them exempt a lot of things including medical care. In the case of Hawaii, there are actually a lot of exemptions on the gross receipts tax, for example, petroleum refining is exempt, airplane leasing is exempt, and also orchards are exempt. So the state of Hawaii finds that orchards are a lot more important to the economy than physicians, I guess, by looking at that as a potential exemption.

What this tax is as an ad valorem. It’s a percentage tax on all medical services performed in Hawaii and in certain jurisdictions, in some of the counties in Hawaii. Even though it’s illegal to pass on the tax, what all taxes do is they either raise prices or they lower services that are available to consumers. In the end, consumers pay taxes either through higher prices, reduced services, or in some cases reduced quality of services.

We looked at the tax in Hawaii on the segments that it’s imposed upon, and we found that overall in tax, it taxes medical consumers and practitioners about $222.3 million. That’s actually a big number when you look at how, actually, small the economy of Hawaii is, and just what the size of the medical profession is. I’m going to go into this in a little more detail. We looked at what would happen if the state were to exempt medical care from the GET, and we found that it would create about 3,945 jobs in the medical care industry in the state.

These aren’t just physicians, these are physicians, lab workers, nurses, administrators in offices — 3,945 new medical jobs in the state. And another 4,000 jobs in industries that supply the physicians and that benefit from sales made to the workers in the health care industry. Now, it would obviously reduce GET revenues by $222.3 million dollars, but that would be offset by $67.3 million in new taxes generated on 1.4 billion in new medical economic activity in the state. So it is pretty substantial.

And we looked at the overall medical industry in Hawaii, and our numbers are slightly different than the MAs (medical assistants), but not by a lot. We find that direct jobs in medicine in Hawaii in 2018 were about 65,000 jobs. Now, we get this by counting actual doctors in the state. That’s where our number comes from, doctors in their offices. Of these jobs, about 37,975 — 38,000 — are subject to the GET. As it was mentioned, hospitals are not generally, nursing community care facilities are not because they’re nonprofit. Mental health and substance abuse-type facilities tend to be nonprofit too, and they’re not subject to the GET.

Now the 38,000 people that are subject to the tax generate about $4.9 billion in economic activity in the state. The state collects about $5,000 per employee from the GET. And the counties that impose the tax, and those are the major counties in Hawaii, receive about $700 more per employee. If you think about it, the normal physician’s office with a doctor, maybe a physician’s assistant, and a couple of administrators would be paying about $20,000 to $25,000, in gross receipts tax to the state, and that comes straight out of the bottom line of that practice.

Now, if the tax were eliminated — again, I mentioned in total about 8,000 new jobs would be created — those jobs would generate about 678,000 in new wages for people working in the state, and $1.4 billion in economic activity. It’s a big deal. State and local taxes would be offset somewhat. And the benefits would spread out far beyond just the medical industry.

The table at the bottom of this slide shows that industries as varied as social services, retailing, restaurants — of course, this was when restaurants were open still —  real estate, the hospitals, which are not subject to the tax, the construction sector, would all benefit through new jobs created. 

That’s basically my presentation. This is a tax on individuals in the state, be they the doctors in their offices, or the people that are looking for medical care. It’s a very odd tax, and I would think that medical care is at least as important as orchards in the state of Hawaii. So possibly this would be a good place to look for an exemption.

Akina: Thank you very much, John. Anyone can access your paper by going to the Grassroot Institute website and just typing in John Dunham. D-U-N-H-A-M. I appreciate your presentation. … Now to Joe Kent for questions and answers.

Kent: First thing, just a correction. The webinar that Keli’i mentioned that’s coming up is actually on May 5th. If you’d like to learn more about that, you can visit our website. We have a lot of questions coming in, and keep them coming. 

We have Kealii Mossman who asks, “If doctors can’t legally pass on the general excise tax and instead raise prices to try and cover the GET that they have to pay, wouldn’t that increase their gross receipts and lead to an even higher general excise tax due?

Dunham: Yes.

Kent: There’s a lot of other people who are asking questions about things that maybe haven’t been mentioned, (such as) Ed’s list. Ed, you mentioned a list of doctors that left or passed away in 2020, and David Griffith says, “Ed’s list of missing doctors does not include the equal, or bigger number, of Big Island doc’s that used to practice in Kona and Waimea, and it’s kind of a revolving door, or a swinging door of a lot of them just coming and going.” What are your thoughts on that?

Gutteling: I referenced the list, but I didn’t generate it. I’m not surprised if there’s people not on there, to tell you the truth.

Kent: Sure. Also, we have some folks in the audience that I think, maybe, may have something to say about this. Michelle Mitchell, is she there? Yes, Michelle. And Scott, would you like to introduce her?

Grosskreutz: Yes. Michelle Mitchell is a member of our Hawaii Physician Shortage Task Force. She has a private practice. We’re very glad to be working with her on the Big Island. She’s been trying for some time to recruit some additional physicians, and she’s been a frequent voice for advocacy for this issue at the legislative level.

Kent: Well, Michelle, I think we might be able to hear you. Are you able to give us your take on this?

Michelle Mitchell: Sure. First, I can answer the question about increasing prices. I can set whatever price I want. As a primary care physician in Hilo, I can charge $75, $500, $5,000, but I’m only going to get whatever the insurance pays. The contract with the insurance is that they pay me their set price, and that is what it is, no matter what my price is. The price that I set only matters for somebody without insurance, which becomes an unfortunate reality for that person.

I can speak to having a great deal of difficulty in attracting physicians to come to Hawaii. I was actually talking with Dr. Ignacio about that earlier this week. It’s a big struggle. My practice is overwhelmed with patients. We have a huge shortage here on the Big Island of physicians, and I would love to have another physician in my office. Before we were struggling with the pandemic specifically, I’d been searching actively for another primary care physician to add to my practice, and I’d been looking actively for six months.

In that previous six months, I’d interviewed six different physicians, four of whom had actually had a strong connection to Hawaii. They’d either lived here or had immediate family members here. I offered each of those six physicians a position here, but not a single one took it. They all cited an inadequate salary. It became a problem because I couldn’t offer them a higher salary. If I did, I’d actually be paying for the medical care of our community, and I can’t continue to do that.

I had six people who wanted to come here, they wanted to be here, they wanted to be in rural areas. But they also have bills to pay. They have loans to repay, and they’re honestly tired of living in poverty. As a medical student, you are accumulating debt for the privilege of working your butt off to learn and working in hospitals, and then as a resident, you’re paid minimum wage or less. That’s honestly what we get as residents. It becomes a really difficult pill to swallow to be continued to ask to live essentially in poverty as an attending. That is why we’re struggling so much to get physicians here. It’s not they don’t want to be here, it’s that we’re really tired of living in a situation where we’re forced to scrape by.

Kent: Thanks, Michelle, that was a really compelling story.

Dunham: Joe, can I come in on that real fast?

Kent: Go ahead.

Dunham: Michelle made a really interesting point. She gets paid for — all the doctors get paid for — a service by an insurance company who’s already lowered the price down as much as is possible. Let’s take a service that costs $100. The doctor gets paid by the insurance company $100. Now, you would think that the GET on that’s — what? — $5 maybe, but let’s see where that $100 goes.

First off, that doctor is paying, of that $100, about $45. These are real numbers. About 45 of those dollars goes for goods and services that the doctor has to pay for to keep their practice going: things like insurance, things like rent, things like electricity, things like swabs and band-aids and needles, and things like that. That takes them down to about $55 out of that $100. Then they have staff, right? They have a nurse practitioner, they have a nurse, they have people that have to manage all that paperwork that comes from insurance. That’s going to be about another $25 of that $100. That takes the doctor down to about $30.

Now remember, the doctor’s a small-business person, right? So they’ve got $30 out of the $100. Now they have to pay taxes on that. (The) average tax (is) about what, a third? Now they’re down to $20. That $100 payment from the insurance company ends up equaling $20 to the small-business person, and now the state is going to take $5 of that. That $100 bill generates for the doctor 15 whole dollars, and that’s after — what? — 24 years of medical school. It’s a 25% tax, really, when you look at it.

Kent: That’s a really great example. David Griffith in the audience mentions, “In terms of recruitment, it’s not necessarily just the general excise tax, because there’s a lot of other added cost of doing business in Hawaii. Right off the top, it’s the lower reimbursement  because of Hawaii’s rural status, and also, there’s no doubt once a physician is in the system, the general excise tax is a big factor. And you have your overhead increased, as John mentioned.” David says, “Outpatient clinic overhead can range anywhere from 35% to 80% of revenue.” Does anyone want to respond to that?

Dunham: That’s a pretty good number. It’s about 75%.

Kent: It’s about what you said, yes.

Dunham: It’s about what I said, yes.

Kent: Lloyd Lim says that the Legislature may say, Scott, you’re referring to the bill, “Your data is no longer accurate due to coronavirus events. Your projections don’t really mean much.” Do you have an answer for that?

Grosskreutz: Well, we are working with Kelley (Withy) and with the others to try to get a more accurate projection of the shortage, but with the loss of hospitals and health care workers who have actually been fired from the job in many locations in the Big Island, it could only be worse. This problem has been looked at and reported to the Legislature by the Area Health Education Center of the University of Hawaii for going on 10 years now. We haven’t had any remedial action taken to date.

To be honest, we’re in the position where actually, there’ll be less money coming to the public coffers, because if we were to actually have the 830 positions that we need in order to provide care for our local population, according to an AMA survey, the average physician pays in $126,000 to state and local taxes. You just do the math on that, and we could be bringing in — if we had enough doctors, and we just tax them at standard rates for corporate tax and our fairly high personal income tax — you’d be looking at another $100 million, in addition to the jobs created that Professor Dunham was talking about. So you’re right that the COVID pandemic has changed things for the worst.

Kent: Kai Monahan says he’s troubled by the exclusion of certain therapies and osteopathic methods particularly by insurance restrictions and government regulations that are not applied in other countries. He says that patients just go to other countries, then, to get some of those treatments. He’s curious about the effect of protectionist measures on restricting the supply of doctors in Hawaii. Are you seeing that?

Grosskreutz: There are major issues with the supply chain of different providers and, of course, I’m knowledgeable about the physician. I know we’re also, by talking to our nurse colleagues, that there’s a shortage of APRNs. There was projected to be between 80,000 and 130,000 positions less than we need to service the health care needs of America by 2030. With the COVID practice and people who are going to be bankrupt, retired, sick, unfortunately, (and) some of our health care practitioners dying, that’s going to be worse.

You have a nationwide shortage to that extent, and the rest of the states will be actively pursuing the remaining positions. Our state is basically chasing people away, while other states are trying to recruit positions, (relaxing) medical licensing requirements in the state and things like that. It’s a huge issue. 

The other problem that we have is that, while there’s not enough medical students, there are not enough residency slots available in the U.S. to train the existing medical students. You can graduate from medical school and still not be able to get the additional residency training you need in order to practice as a physician. That’s a huge roadblock. 

The idea that somehow we’re going to lose these doctors, and somebody’s going to write a law or have some proclamation and we’re going to fix our problem, I just don’t see that. We have to have Hawaii to be an attractive and competitive place to practice in order to have any shot.

Kent: Mark Monoscalco says he agrees that we need to exempt medical care from the general excise tax. He also suggests that Medicare and insurance reimbursements are a major problem for health providers in Hawaii. He asks, “Do our panelists have any comments on the Free Market Medical Association and the concept of cash payments rather than third-party payer insurance?”

Grosskreutz: There are some individuals I know that have left practice and become kind of a concierge practice. That is a model that works for some folks, and so we are having some physicians move to that sort of a thing. But particularly on the Big Island, we have a huge percentage of the folks who are on the Big Island who are on Medicare or Medicaid. I’m afraid that’s just not just an option for many of our ohana on the Big Island.

Kent: Adrian King asks, “What effect did Obamacare have on prices, and why did the AMA support it?” Basically, why did the AMA support Obamacare? It’s maybe a different question.

Grosskreutz: I’m going to pass that one off to Dr. Dunham. I’m afraid that’s above my pay grade.

Dunham: I can tell you what it did to prices. I have no idea why the AMA supported Obamacare. [laughs] I’m in New York. New York is a little different than probably everywhere else, because if you have Obamacare insurance in New York, as my company, unfortunately, has to, you basically have no access to doctors at all because nobody takes any of the plans. I think in terms of prices, what it’s done is it’s shifted most of those patients off to clinics and urgent care units. It’s really taken away business from doctors.

Kent: I’m sorry, Lisa, you had something to say?

Ignacio: I was going to say, I think that the Affordable Care Act, they were hoping to improve access obviously and to be able to provide medical insurance for more people, and we’ve been successful in that in Hawaii and in a lot of the states because the Affordable Care Act allowed that. But the gains from ACA and from expanding Medicaid in the last couple of years, it’s basically stopped now in the last year. What was a great idea of everybody having medical insurance, it worked to some extent, but as I said before, when we were talking about health care here in Hawaii specifically, you can have insurance but not necessarily have access. You can be assigned to a physician but if you only have three or four physicians in some areas, you’re still going to have a three-month wait to see your physician, and that’s not necessarily access.

Dunham: Yes. Health care and health insurance are two different things.

Gutteling: I’d just like to mention there, the AMA represents about 12% of practicing doctors in the nation, most of whom are in academic practice getting salaries from universities and hospitals, so look for them to be a voice of reason about what happens when a doctor hits the road out in Main Street is erroneous. And they are frequently looked to, to be the voice of medicine. They shouldn’t be.

Kent: I see. It’s not all doctors are the same or in the same group I suppose. Dwayne Lopez says, “The state seems to place greater legislative support for advanced nurse practitioners in lieu of licensed physicians. How is this competition for services helping or hurting physician shortages? Is this keeping reimbursement rates low?”

Grosskreutz: I can address that to some degree. First of all, the APRNs who are functioning as primary-care providers are a critical part of our health care network on the Big Island. If we did not have their assistance working with us — many times physicians and APRNs work together in the same practice — things would be much worse. As it is, many individuals don’t have any access to primary care on the Big Island. What they do is they go to the emergency rooms.

They go to the emergency room for things that could be managed in a primary-care setting. What that ends up doing is raises the cost tremendously, because it can cost four or five, six, 10 times as much to treat a medical problem in the emergency room as it would be in a clinic. As it’s been pointed out by Dr. Ignacio, once that person is treated in ER and they need to be followed up on, there’s no primary care provider at the back end to monitor therapy and see how the patient’s doing on their medication regimen or to see whether their pneumonia has actually been treated.

The way we’re doing things right now is actually an extremely expensive way to practice. As you probably heard in paying attention to this issue on the mainland, many times on the mainland, physicians take Medicare patients almost as kind of a charity care, expecting to break even or lose money on Medicare. But the local, private-pay insurance plans pay substantially more than Medicare so they subsidize the overall cost and keep the practices open. In Hawaii, the level of reimbursement from private insurances is basically Medicare plus a percent or two. It’s almost the same.

Kent: One more question. Joel Van Brunt asked, “Would Medicare for All help or hurt the shortage?

Grosskreutz: I’ll probably speak to that again. If physicians in effect, with the GET, the county surcharges — we have the lowest Medicare reimbursement in the country. If physicians are already losing money taking care of Medicare patients, and then everyone was on Medicare, well, [laughs] we’d all be out of business probably in three months.

Dunham: I think another important point to that is that, what is being called, Medicare for All, is actually not because it gets rid of Medicare. All of the proposals for Medicare for All get rid of Medicare itself. What it is really is Medicaid for All. I’m sure every doctor here can tell you how bad the reimbursement rates and the services are from Medicaid.

Gutteling: I should mention about Medicare and Medicaid. The way they decide what to pay is based on their political priorities. It’s not based on the cost of delivering care. They figure out, how much money can we take out of our budget every year? Then we’re going to divvy it up from there. How much money they take out has got nothing to do with how you actually deliver health care. It’s logically divorced from that. So to use Medicare as a benchmark for how you’re going to do health care throughout the whole nation is ludicrous, squared.

Akina: Joe, thank you for moderating the questions, and to all of you who have participated with us today. We appreciate it. Thanks for the wonderful questions. 

We’ve seen it. Hawaii’s tax structure, particularly the GE tax, is driving Hawaii physicians out of local practice. That’s resulting in a shortage, a critical shortage of health care for Hawaii’s people. I want to say mahalo to John Dunham, Ed Gutteling, Elizabeth Ignacio and Scott Grosskreutz. You did a great job today, panelists. 

Everybody, when you get off the line today, go to lethawaiiwork.com. Lethawaiiwork.com, and sign the petition. Until next time, this is Keli’i Akina with the Grassroot Institute. Aloha.



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